What are the solution of 9-64 Bond Premium Transactions (Alternate is 9-63 .) As

Question

What are the solution of 9-64 Bond Premium Transactions

(Alternate is 9-63 .) Assume that on December 31, 20X0, Colorado Woolens issued $10 million of 10-year, 10% debentures. Proceeds were $11,359,000; therefore, the market rate of interest was 8%.

1. By using the balance sheet equation format, prepare an analysis of transactions for Colorado Woolens. Key your transactions as follows: (a) issuance, (b) first semiannual interest using effective interest amortization of bond premium, and (c) payment of maturity value. Round all amounts to the nearest thousand.

2. Prepare corresponding journal entries for (a), (b), and (c) in requirement 1.

3. Show how the bond-related accounts would appear on Colorado Woolens’ balance sheets as of December 31, 20X0, and June 30, 20X1. Assume that the semiannual interest payment and amortization have been recorded.

4. Calculate the interest expense for the 6-month period ending December 31, 20X1.

Explanation / Answer

Ans 1 Issuance Assets=Liabilities Cash=10%debenture Payable+Premium on Issue of debenture 11359000=10000000+1359000 b) First Semi annual Interest Cash=Interest Expense+Amortization of Bonds Premium 500000=454360+45640 c) Maturity    -Cash=-10%debenture Payable-Premium on Issue of debenture-Interest Expense -10500000=-10000000-403843-96157 Accounts Title Dr Cr 31 dec 20X0 Cash 11359000 10% debenture payable 10000000 Premium on Issue of debenture 1359000 (Being debenture issued at premium) 30 June 20X1 Interest expense 454360 Premium on Issue of debenture 45640 Cash 500000 (Beingsemi annual Interest expenses recorded) 10% debenture payable 10000000 Cash 10000000 (maturity value) Interest Expense 403843 Premium on Issue of debenture 96157 Cash 500000 (interest payment) see amortization table Ans 3 Balance Sheet 31 Dec 20X0 Long term Liability 10% debenture payable 10000000 Premium on Issue of debenture 1359000 30 june 20x1 Long term Liability 10% debenture payable 10000000 Premium on Issue of debenture 1359000-45640) 1313360 Ans 4 Interest for 6 month period ending 31 dec. 20X1 454360 A B C D E F G Date Interest Payment @5% (Semi annual) Interest expenses at 4%*G Amortization of Bond C-B cr, balance in the a/c Bond Premiuma/c Credit balance in the Bond payable Carrying value of Bond F+E Credit cash Debit Interest Expense Bond Premiun Dec 31 20X0 1359000 10000000 11359000 June 30 20X1 500000 454360 -45640 1313360 10000000 11313360 Dec,31 20X1 500000 452534 -47466 1265894 10000000 11265894 30-Jun 500000 450636 -49364 1216530 10000000 11216530 30-Jun 500000 448661 -51339 1165191 10000000 11165191 31-Dec 500000 446608 -53392 1111799 10000000 11111799 30-Dec 500000 444472 -55528 1056271 10000000 11056271 30-Jun 500000 442251 -57749 998522 10000000 10998522 30-Dec 500000 439941 -60059 938463 10000000 10938463 30-Jun 500000 437539 -62461 876001 10000000 10876001 30-Dec 500000 435040 -64960 811041 10000000 10811041 30-Jun 500000 432442 -67558 743483 10000000 10743483 30-Dec 500000 429739 -70261 673222 10000000 10673222 30-Jun 500000 426929 -73071 600151 10000000 10600151 30-Dec 500000 424006 -75994 524157 10000000 10524157 30-Jun 500000 420966 -79034 445123 10000000 10445123 30-Dec 500000 417805 -82195 362928 10000000 10362928 30-Jun 500000 414517 -85483 277446 10000000 10277446 30-Dec 500000 411098 -88902 188543 10000000 10188543 30-Jun 500000 407542 -92458 96085 10000000 10096085 30-Dec 500000 403843 -96157 -72 10000000 9999928

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